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Choosing and managing your suppliers

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Last updated on October 17, 2016

Business trade depends on sourcing vital raw materials, parts or merchandise from suppliers in a timely manner.

Choosing a supplier

The cost of poor suppliers can be significant.  You run the risk of losing business and there are human costs too, in the form of frustration and stress.  Get it wrong and you can incur additional costs for delays, returns and replacements.

Before you enter into a business relationship with a supplier, consider the following questions.

  • How long has the prospective supplier been in business?
  • What is the supplier's record for on-time deliveries?
  • Is the supplier's business quality assured?
  • How does the supplier's pricing structure compare with competitors?
  • What lead times does the supplier need for the supply of goods and services to your business?
  • What capacity does the supplier have to meet a rush order, should it arise?
  • What payment terms does the supplier offer?
  • Are you willing to negotiate supply contracts over a period of, say, 12 months?
  • Can you identify alternatives if a delay in supply occurs?
  • What would you do if your chosen supplier went out of business overnight?
  • What is the supplier's policy in relation to damaged goods or the supply of goods other than to specification?
  • Does the supplier have a local representative with whom you can deal?

Should you have single or multiple suppliers?

Think about how your business would be affected if a serious problem arose in the supply of a particular range of goods or services.  For some businesses relying on a single supplier, even a short delay may have major implications. However, there are benefits to each option.

Having a single supplier can mean that:

  • less time is spent on chasing prices
  • it may be easier to negotiate discounts and trade credit
  • you build a relationship with your supplier that enables priority orders to be rushed through
  • there is less variation in the quality of goods and services supplied
  • ordering, inventory management and accounting procedures will be simpler.

Having multiple suppliers can offer:

  • a form of insurance against problems which may arise with a single supplier
  • price competitiveness.
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